Amid rising per capita income and controlled inflation, isn’t it a bit odd that consumer confidence in Pakistan has been declining lately and now stands at an 18-month low? But this is what the latest reading of the bimonthly IBA-SBP consumer confidence index (CCI) tells us in January 2018. And this is also what this column had anticipated in a related post “Wither consumer confidence?” published January 22.
Globally, there is debate over whether consumer confidence is a leading or lagging economic indicator. In Pakistan’s context, it is likely a leading indicator, for there is no other plausible label for the trend-line of the SBP-IBA CCI survey (showed in illustration).
The latest CCI reading came in at 45.7 – a 3.5 percent drop over November 2017. Ominously, this diffusion index is down 10 percent from a year ago, when, at 50.6, the CCI diffused net optimism about the economy. Pessimism is slowly seeping in. The SBP, in its latest quarterly report, didn’t sound alarmist over domestic demand and the consumers who are driving it. But it did cite inflationary pressure as a rationale to raise the policy rate after many rounds of maintaining the status quo.
Thanks to rising petrol prices, folks are apparently anticipating higher inflation in the future, and that seems to be primarily driving the growing pessimism. As per the survey report, inflation expectations also rose across the board – for food, energy and the rest – as 88.1 percent of respondents expected inflation to increase in the next six months, higher than the 83.7 percent who thought the same in November 2017.
The lean economic spell on the back of low commodity prices is over. As global crude prices rebounded, petroleum prices at home have been raised in recent months. Also, worsening rupee-dollar parity has raised concerns about imported inflation. That led the central bank last week to raise the policy rate after many rounds of status quo, to “preempt overheating of economy and inflation breaching its target rate”.
Other, more tangible indicators in the survey also exude pessimism in their respective diffusion indices. Compared to the last reading, views about rise in unemployment and interest rates grew. Purchasing intent over next six months (for durables and cars) dropped. Also, the outlook for better household financial conditions in next six months dropped, though coming in at a net positive at 52.7.
However, it may not be all gloom and doom in the next six months. As pointed out by this column in “Impact of currency depreciation,” published December 14, 2017, “The impact of any depreciation this time around would not be too inflationary as domestic prices are already higher than global averages”. Yes, petrol and diesel prices may continue heading north, but its cascading effect on higher electricity and gas tariffs may be blocked by a government so close to heading to a general election.
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